Is BHP burning bridges with investors?
Fisher’s listed Barramundi fund, which invests in Australian shares, has sold out of mining giant BHP as the stock nudged 52-week highs on the ASX this month.
But the decision wasn’t based on value.
Instead, Barramundi told investors it had “drawn a line in the sand” over BHP’s continued production of thermal coal — burnt in power stations to generate electricity.
In a letter to investors, senior portfolio manager Robbie Urquhart said Barramundi had sold out of BHP because it was deemed to be in contravention of the fund manager’s responsible investing policy.
“When we built our positions in BHP and Rio Tinto in 2016, both companies were producers of thermal coal,” Urquhart wrote.
“At the time it looked to us as if they were actively exiting their thermal coal operations.
“For this reason, we felt both companies were permissible holdings under our Responsible Investing Policy.
Rio exits
Since then, Rio Tinto has exited thermal coal completely, selling its last mine in 2018.
“While BHP had exited a number of thermal coal assets when it demerged the South32 operation in 2015, it has, however, hung on to its remaining assets in Colombia and Australia. Recent commentary from the company indicates that it is happy with its remaining thermal coal exposure. This was a big red flag for us.
“So, notwithstanding that we still regard BHP’s portfolio of businesses and management team highly, we have drawn a line in the sand.
“Until the remaining thermal coal assets are disposed of, we will no longer be investing in BHP’s shares.”
That’s a bold move from Barramundi and one that more and more fund managers are making.
The New Zealand Super Fund has shown the way in many respects, putting its own line in the sand on weapons manufacturing and other unethical investments.
Barramundi is following a worldwide trend on thermal coal.
Australia’s largest insurer, QBE , is about to stop insuring any new thermal coal projects and will get out of coal entirely by 2030.
And thermal coal prices plummeted earlier this month to multi-year lows, before recovering.
Barramundi investors will no doubt be keeping a sharp eye on that BHP share price.
The stock is up nearly 18 per cent in 2019, and recently traded at $A38.43.
AIG’s kiwi dividend
The New Zealand arm of global insurance giant American International Group has paid out a higher dividend to its parent, despite seeing a drop in its operating profit.
Accounts for AIG Insurance New Zealand — a major sponsor of the All Blacks — show the insurer paid out $15 million in dividends in its 2018 financial year, that’s up from $14m.
That was despite its operating profit after tax taking a dive falling from $13.1m in 2017 to $8.6m.
While insurance premium revenue rose from $187m to $211.7m its claims also rose from $127.8m to $139m.
That helped push its total expenses for the year up from $87m to $110.6m. Auditors PriceWaterhouseCoopers noted AIG New Zealand’s valuation of gross outstanding claims as a key audit matter.
Outstanding claims for the New Zealand arm have risen in the past year, from $230.9m to $247m.
PwC said this was a key audit matter because of the complexity involved in the estimation process and “significant judgments” the company makes in determining the balance.
“Claim reserves are a best estimate of all claims incurred but not settled at a given date, regardless of whether these have been reported to the company.”
PwC undertook a deep dive looking at the work of the insurer’s actuary and compared the models used to generally accepted practices.
In the end, it found the outstanding claims included a risk margin that factored in the uncertainty.
Blackmores sinks
A2 Milk and Australian vitamin maker Blackmores are sometimes lumped in together because the unofficial “daigou” trade channels are a big part of their businesses.
But while a2 milk’s share price has hit new highs this week, Australia’s Blackmores’ has been heading south — with daigou at the centre of it all.
The ASX-listed company this week posted a slump in thirdquarter profit, partly due to a new China e-commerce law which came into force during the quarter.
The new rules mean that some goods sent to China through e-commerce channels need to adhere to higher product safety standards and a stricter tax regime.
Blackmores said the move resulted in lower sales to Chinese consumers through Australian retailers or personal shoppers in Australia who sent goods back to China. In contrast, a2 Milk has said it has had no impact from the new Chinese e-commerce laws that came into effect in January.
The company does not report quarterly, but it said early this month that it was making “pleasing progress” for Chinese label and English label cross border e-commerce channels. Investment bank UBS, in a comprehensive report on the China’s infant formula sector, said a2 Milk looked to be gaining market share at the expense of its bigger competitors. Blackmores, like a2, is a highly priced stock. Blackmores’ share price tumbled as much as 7 per cent soon after the result before partially rebounding. The stock last traded at A$92.15.